The effects of changes in the composition of employment on euro area wage growth: panel data analysis

Angel Luis Gómez

No 2028, Occasional Papers from Banco de España

Abstract: In the euro area, the composition of employment has changed significantly since the onset of the financial crisis, particularly in terms of employees’ age and educational level, in addition to the incidence of temporary contracts. This paper exploits two new panel datasets to estimate the extent to which changes in the composition of employment were behind weak wage growth in the euro area and in its main member countries during the economic recovery following the financial crisis. This type of analysis, which follows the same individual over several periods of time, allows the effect of individual productivity to be treated econometrically and certain biases that could affect the use of cross-sectional data to be avoided. It is concluded that changes in the composition of employment had some positive effect on wages in the euro area between 2010 and 2012. However, from 2013 until 2017, the last period for which microdata are available, this effect turned negative and increased in magnitude, dampening aggregate wage growth. In the last two years the effect was particularly significant, with an impact of around 1 percentage point. Correcting for the effect of changes in the composition of employment on wages leads to a closer relationship between wages and cyclical conditions.

Keywords: compositional effects; panel data; individual fixed effects (search for similar items in EconPapers)
JEL-codes: E24 J31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2020-11
New Economics Papers: this item is included in nep-mac
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https://www.bde.es/f/webbde/SES/Secciones/Publicac ... 20/Files/do2028e.pdf First version, November 2020 (application/pdf)
https://www.bde.es/f/webbde/SES/Secciones/Publicac ... s/20/Fich/do2028.pdf Spanish version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:2028

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